The need for certainty

You want to know how to win and you want to know for certain that your strategy is going to work. But the market is an inherently uncertain phenomenon. You’ve probably already heard of the return that your strategy produces, or you’ve seen multiple examples of it in action by the instructor of the course you got—so why don’t you execute it with confidence and instead consider hopping to another system after a few losses?

It’s because you need to know for sure. You need hard evidence that it’s going to work consistently. So what can you do to make sure?

The good news and the bad news

Bad: There’s never certainty in the markets despite the claims of all of the “surefire” strategies and systems sold out there—markets change and we must adapt our strategies to the changes, because systems that worked in the past may not work so well in the future.

Good: Making money trading forex is almost like a coin flip game, where you win $1 if it lands on heads and you lose $1 when it lands on tails. However, if you could do just a few tiny things to make the coin heavier on heads, then you have an edge over your opponent. What’s an edge? As Mark Douglas, author of Trading in the Zone defines it: “an edge is nothing more than an indication of a higher probability of one thing occurring over another.” If you spot a pattern that usually precedes a price movement and the amount you win is larger than the amount you lose, you have an edge. The problem is, if you don’t take this into account, the people who taught you the strategy probably only showed the cases where the strategy worked, and ignored the losers, leading to a belief that the strategy was profitable, when in fact, it didn’t have an edge.

What you can do to best prepare yourself for victory on the forex battlefield

1. Make sure that your system has a positive expectancy based on past data. We want to make sure we have an edge as discussed above, right? In order to check that, do the following: First, multiply your winning percentage (e.g. if you win 4/10 trades that’s a 40% win rate) by the amount of pips of your average win. Second, multiply your losing percentage by the amount of pips you lose on average. Subtract the second number from the first number. This is your expectancy, or how much you should expect to win on each trade. If that number is not greater than 0 in a sample of at least 30 trades, your system is likely to fail miserably.

2. Make sure that the system makes sense and is based on how the market actually works. Many traders don’t achieve forex success because they simply don’t know what they’re doing. If you want to get good at anything you should focus on really understanding it and mastering it. Make sure there’s a real reason for why you take a trade besides just a statistical likelihood of success. For example, I feel comfortable fading a news rally if there wasn’t much of a surprise in the economic data and price is approaching yesterday’s high, because I know other traders are also realizing the move was nonsense and they’re eyeing the resistance level as well. On the other hand, I would be very wary about buying a currency solely because its fast moving average crossed over its slow moving average, because that’s just an indication of 2 lines moving and isn’t really based on the underlying behavior of the market.

Do these two preparation items before anything else and your confidence will soar as a trader. Furthermore you’ll be able to stick with your strategy through the occasional and inevitable losing streaks, knowing that you’ll win, instead of playing the losers’ game of hopping from system to system.

Kris Matthews http://tradeforexfundamentally.com

Want to see what other traders are doing in real accounts? Check out Currensee. It’s free..

Hello All,

I hope the forex markets have been treating you well and also that the techniques I have showed you have helped in your trading.

Today I am going to be showing you a new technique that will surely help you in your quest to become an elite trader.

It is called an Engulfing Candle

An Engulfing candle is a candle whose length completely encompasses the previous candle with a close above the high or below the low candle. If the close is above the high of the previous candle then it is a bullish engulfing candle and that signals a buy, while if the close is below the low it is a bearish engulfing candle that’s signals a sell:

The arrow is pointing to a bullish engulfing candle that if bought would have produced a winning trade.

Engulfing candles are the result of a sharp turn in the direction of price as compared to the previous bar. So in the case of a bearish engulfing candle price was previously moving up, and at the open of the next bar price tries to continue its upward movement but cannot not sustain it and it quickly moves down and closes below the low of the previous bar signaling a trade.

Now to see this pattern in action let’s look at a hourly chart of Eur/Usd

At each of the numbered points on the chart we see a bearish engulfing candle followed by a hard move down.  This is a very reliable pattern that is central to my own trading. Incorporating this into your trading will only serve to increase your profits.

A special note about the third trade:

If you notice the first two bearish engulfing candles followed bullish candles, but the third one followed another bearish candle. This is common and is still a valid trading signal.

Well that’s all for today. I hope you all take this technique and increase your profits. Until next time.

Happy Trading

If you would like to learn about more patterns like these and how you can discover how you can learn the secrets to trading for a living then visit beatwallstreetnow.com

Want to see what other traders are doing in real accounts? Check out Currensee. It’s free.

Hello All,

I hope you found the inside candle breakout technique I showed to be useful, and I hope some of your went on to use it to make a few pips for yourselves.

Today I am going to show you how I used this technique to make an easy 73 pips trading the Eur/Usd intraday. I hope by seeing the trades I took you will see how easy it is to profit in the forex market if you have the right tools:

Here is a chart of the 15min Eur/Usd from Wednesday, April 28, 2010:

1. At this point we see a breakout of the previously established inside candle. I immediately went short here and got in at about 1.3210.
2. It was at this point that I closed my position at 1.3179. I closed my position here because I did not like the price action that was occurring on the smaller timeframes. So I decided to play it safe and get out of the market. This got me 31 pips.
3. Here we see a large bullish candle and if you look closely that this candle is actually a breakout candle. The two candles before it were inside of the candle that I exited my first trade on. You may be asking yourself why I didn’t take this trade. Well it’s simple really, I didn’t take the trade because the wick was really long which tells me that price tried to move up but couldn’t sustain the momentum and the fact that price had touched an area of resistance(as evidenced by the blue line) before it was pushed back down made not taking this trade a no-brainer.
4. At this time I noticed another inside candle breakout to the upside and I quickly went long and got in at 1.3158.
5. And this is where I closed my trade at 1.3200 for 42 pips

Do you see how easy it is to trade these candles? I really hope that you take this technique and use it to profit in the forex market, but before you do make sure you demo trade with it first. So that you can test it out in a risk free environment. Until next time.

Happy Trading,

Jason Madison

If you would like to learn about more patterns like these and how you can discover how you can learn the secrets to trading for a living then visit BeatWallStreetNow.com

Want to see what other traders are doing in real accounts? Check out Currensee. It’s free.

Take Your Forex Trading To New Heights With This Amazing Technique. It’s Called An Inside Candle Breakout. An inside candle occurs when the body of a candle is contained entirely within the price action of the previous candle.

The third candle from the left is the candle that is containing the four candles following it. The arrow pointing to the fifth candle shows where a breakout occurred as price was able to close outside of the containing candle. A long trade entered here would have been very profitable. Notice also the pink lines at the highs and low of certain candles. Also, notice how whenever a candle closes outside of one of these lines price continues to move in that direction.

So, the rule for trading inside candle breakouts is to open a trade in the direction of the break. If the breakout is at the low you sell, if it’s at the high you buy it’s that simple

Now Lets Look At Some Charts To See How Well This Pattern Works. Here is a chart of the Eur/Usd

The yellow lines represent the highs and lows of the containing candle and the yellow arrows show where the breakouts occurred. The first breakout gave a small gain but look at the second and how the market moved down hard, and then how it moved back up after the third. Imagine all that cash being deposited straight into your account.

The best part about this technique is that it works on all timeframes and doesn’t require you to wait on any lagging indicators. It’s based on pure price action.

So take this technique and use it to master the markets and start your journey towards financial independence.

If you would like to learn about more patterns like these and how you can discover how you can learn the secrets to trading for a living then visit BeatWallStreetNow.com

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Want to see what other traders are doing in real accounts? Check out Currensee. It’s free.

Forecasting currency movements longer term can be a dangerous (and potentially embarrassing) undertaking. Get the numbers right and you’re a hero and looked upon as a currency trading guru; wrong and you’re punished with “What were you thinking” comments, snipes, derisive statements or worse. So, what to do? Keep what info you’ve amassed to yourself and trade just managed accounts that no one but you and your clients will ever see? Or, put it out there to the rest of the trading world? Hummmm…….

Well, let’s see if we can take some sensibly planned, strategic action instead, that limits potential losses should the pair choose to climb higher (yes, we’re talking shorting the pair), and attempt to maximize gains should they start to accrue if the pair begins to move south.

Here’s what I see..

At the time of this writing, price seems to be topping out for the day near 1.6250. This is a natural “squaring up” process that started last Friday and appears to be terminating currently with some price overshoot room taken into account up to 1.6255. Strong closes above here, and the bulls may get more emboldened to take price a bit higher. If the bears can hold 1.6250 (a big psychological number) and lower, a Daily close below 1.6150 (a mere 100 pips away) would lend strength to the downside. If, and once that level is broken, it now becomes a matter of finally breaking 1.6100 where a single line trend line would be struck, as well as a .618 fib from the 4 hour chart.

The max upside resistance on a price overshoot is right @ 1.6272 where the bears could enter with some real volume. In my humble opinion, this would be an ideal spot to short the pair with a paltry 30 pip stop @ 1.6305. Why paltry (small)? The upside to this is 1:4 initially down to 1.6152. Then, it’s a matter of waiting for the market make the decision to head much much lower on a break of support @ 1.5833. Should the latter occur where there has been very strong support on the Weekly chart, then we look for the next strong support to be near 1.5350.

Now again….If a trade was taken @ 1.6272, the risk is a minimal 30 pips. Another strategy, should you make the personal choice to engage a little earlier than that entry price so as not to “miss” a potential larger move to the downside, would be to cost average enter into the trade, taking smaller positions so as not to over leverage @ 13 pips increments up to 1.6272 with all positions average at risk of no more than 1%.

The above-mentioned strategy discussed here is based on simple technical analysis. Talking about the fundamental reasons why the Pound could drop so precipitously is a whole other discussion. So today, we’ll leave it at the technical.

Meanwhile, we’re in @ 1.6235 on both a short term and longer term hold and will take small positions higher up to 1.6272.

Great trading to you.

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The Forex Guy wrote about the patience that is needed for forex traders, and touched an interesting point – forex traders want to be free of their jobs and their bosses. I’m following up on this point. Here are the characteristics:

• Education: While you don’t need to spend years in college, basic education is necessary. It can either be done in a forex course, by hiring a coach or by studying alone, if you are disciplined enough. In any case, education cannot be avoided.
• Training: Learning the theory is nice, but like driving lessons, getting on the road is essential. Using a forex demo account for learning technical analysis is one necessary step. There are more.
• Discipline: Sticking to a strategy is very important. This means not forcing yourself into a position. It also means not escaping from a position just to calm yourself down. And sometimes this means accepting that you just don’t do anything. The Forex Guy dives into this issue. This discipline is different from the one you have to demonstrate in the office, but it can be much harder.
• Occasional reassessments: You don’t have to go the meeting room for this, but you should occasionally check out your trades, see what went well and what went wrong, and make modifications to your strategy. The meeting minutes are for yourself.

While similarities exist, the freedom is very rewarding. Do you find additional characteristics?

Trade together with Currensee

The founders of BabyPips aren’t resting. I know them through FreshPips, where I submit many of my posts. Their latest, fifth site, is a very social one. Following Currensee’s launch of a public beta, MeetPips is joining the social forex game.

Serious traders use a trading journal to document their work: they document the time, the position, stop loss, take profit and the outcome of their results. I believe that most traders don’t document their trades, not even at the early stage of testing their technical strategy using a forex demo account.

MeetPips Review

MeetPips definitely makes it easier to manage a trading journal. First of all, it’s online. You can access the journal from any computer. I’m sure that some of you take a peek at the forex market also from work.

Similar to the group’s other site, MeetPips looks good. The site is well designed, user friendly and very intuitive. In addition, the performance of the site excellent, making every visit fun and swift.

When you first sign up for MeetPips, you’re asked to answer 17 general questions about your trading profile and your risk management. On one hand, this is a long process, that can be skipped. On the other hand, this step has an important educative significance, which I find important. Custom questions can be added.

MeetPips questions – click to enlarge.

Then you are asked to add forex trading systems. For every system there are 9 questions, including tough questions such as: “Which signals will cause you to exit early?” and “What is your time stop? How long will you hold your trades?”. Every trader knows that stress is mounting when holding a position for too long.

After filling in the basic details, it’s time to trade. Also here, MeetPips takes an educative role by warning traders that haven’t completed their trading plan that they are actually gambling.

Creating a trade on MeetPips – click to enlarge

The interface for recording a trade is very nice, including a trade management section which asks about the reaction to the outcome and about your feeling at the moment. Psychology is a part of the game…Once a trade is alive, it can be updated and also commented on.

Speaking of community, MeetPips has more community features. You can see what other members are doing – see their trades, win / loss ratio, pips balance, etc. You can follow other members, and also see their blog posts, as well as write your own and comment. Yes, MeetPips is in the Web 2.0 zone, with blogs and also groups.

MeetPips community – click to enlarge

There are many more features in MeetPips, but I think I’ve covered enough.

MeetPips is totally free to use. I haven’t seen any premium sections there. It seems that their business model is advertisements of forex brokers. At the moment, these ads aren’t too intrusive.

Conclusions

All in all, MeetPips is well designed, very intuitive and quite fun. They take an important educative role and help traders become more disciplined. Their community features are excellent.

The big disadvantage is that anyone can say anything there. I can claim to win a million pips and have a 100% success rate. The community may be well connected to each other, but disconnected from real accounts. This is an advantage that Currensee has.

I wish that Currensee and MeetPips will copy each other’s advantages. That would take forex social media one big step forward.

Further reading

• My Currensee review.
• Michael Greenberg also dives into this new venture, and wonders what their business model is…

Beginning today, Currensee is in public beta. Anyone can register. The first part is a review of the product. The second part of the Currensee review includes the drawbacks and some questions and answers from Currensee CEO, Dave Lemont.

Bringing Web 2.0 and Forex Trading Together

The basic thing in Currensee is the ability to connect a real forex account into the system. This enables you to see what your friends on currency are doing. In the vast amount of forums and chat rooms out there, people can say anything about their positions and about making easing money. But here, the chatter (also available via the Currensee site) encounters reality.

Currensee – Click to enlarge.

In the first dashboard that you see when logging in, you can feel the beat of the community. You can see how what people pairs people are trading, the ratio between long and short positions (according to trade volume), the average buy and sell prices and more.

The most interesting thing is that you can see how the community is doing against the market. This is a place where reality kicks in, already in the private beta stage. The is winning in some pairs but losing in others. In some websites, you get the impression that everybody wins…

Another interesting way of making forex trading transparent is seeing live positions of traders, including their names, strategies, stop loss, take profit, position status (some are only orders). I find this insight fascinating.

Forex Strategy Deep Dive

Another fascinating feature is the strategy zone. You can view different forex strategies created by traders. You can also see how these strategies are doing now and how they did in the past.

Currensee Forex Strategies – Click to enlarge.

You can see target pips goals, cumulative success and the number of trades. Diving into the forex strategy, you can see the behavioral metrics such as trade time, risk/reward ratio and more. Grouping and sorting by different metrics is quite neat.

Web 2.0

The internal community requires you to befriend people, similar to Facebook. Just don’t befriend too soon. Curresee contains a discussion board that allows voting and commenting.

Members can be searched by various parameters. You can search for people trading in the same forex strategies, trading experience, currency pairs and more.

Find forex trading friends – Click to enlarge

Currensee has a lot of possible widgets that you can select and move around, similar to many other Web 2.0 sites. You can place news, calendars, RSS feeds, etc. in the dashboards.

Regarding external social services, Currensee can connect to Facebook, IM services such as MSN Messenger, Google Talk and Skype. I wonder how it will connect with the latest buzz: Google Wave. They already use Google’s Open Social API for other social features.

Here is Part II of the Currensee review.

Further reading:

• Currensee’s About page – See the people behind the company.
• Casey Stubbs’ review – Casey is one of the users in the private beta.
• The Networking Blog – A blog all about networking, online and offline, which I co-author.

• Casey Stubbs brings an interesting review of JCLs forex signals. Stay tuned for a serious review here on Forex Crunch on Tuesday.
• Macro Man, in his unique style, discusses US inflation and deflation.
• Speaking of inflation, Eric deCarbonnel dives into history and shows us what hyperinflation is.
• Kathy Lien, in a televised interview, insists that the Aussie and Kiwi aren’t overvalued.
• AshFX, on Forex Magnates, discusses which pairs are easiest to trade.
• Also in Forex Magnates, here’s my guest post about developing a trading strategy.
• Jay Norris maps the trade selection process, which focuses on the preliminary steps to entering a position.
• Adam Kritzer describes the Pound as a sick currency, and explains why the Pound is beaten. Will it continue the comeback?

That’s it for now. Have a great weekend!

If you’re going to learn about just one market-moving catalyst when it comes to foreign exchange trading, history shows it should be interest rate decisions by the world’s major central banks that move currency market more than any other news event. The reasoning behind this is pretty simple. The forex market typically views a currency from a country with high interest rates as more valuable than a currency from a country with low interest rates. That may be simplifying things a bit, but the fact is forex traders need to know when interest rate decisions are coming because being unprepared can mean you miss some great pip-making opportunities.

One way to take advantage of interest rate decisions and more importantly, discrepancies, is by using the carry trade. Before you start executing carry trades, you obviously need to know what a carry trade is and if your forex broker will allow you to put  a carry trade on. Many of the best forex brokers allow their clients to use this strategy. After all, forex brokers make money on every trade you place and they’re not going to discourage you from using one strategy over another. With that, let’s take a more detailed look at exactly what a carry trade is.

As we said earlier, the primary objective of the carry trade is to exploit differences in the interest rates of two countries. The most often used pairs in the carry trade are the Australian Dollar/Japanese Yen (AUD/JPY) and the New Zealand dollar/yen (NZD/JPY). The carry trade has been around for more than two decades, but only recently joined the commonly used forex lexicon. The reason for this is because the Bank of Japan has kept interest close to zero for more than a decade while the Reserve Banks of Australia and New Zealand have raised their interest rates to combat inflation in their rapidly-growing economies. Other pairs to carry trade with are GBP/JPY and GBP/CHF, but only when interest rates are high in the U.K.

Essentially, a carry trade means you use a low-yielding asset like yen to buy a high-yielding asset like the Aussie dollar. Now the best part of the carry trade is you don’t even need the currencies in the pair to move because you’re earning interest for as long as you hold the trade. Think of your carry trade as high-yielding savings account. This how you garner interest. Let’s say Australia’s interest rate is five percent and Japan’s is one percent. Take the difference, four percent, and multiply it by the value of your trade. Then divide that number by 365 (the number of days in a year) and the result is the amount of interest you’ll earn on a DAILY basis.

You could earn more interest in a week-long carry trade than you could in a year with a traditional savings account, so as you can see, the carry trade is a powerful tool that all forex traders should have in their arsenal. So don’t ignore the carry trade and make sure you’re trading with one of the best forex brokers that can help you with your carry trading strategy.